When and at what point do you sell a stock for a loss? Maybe do nothing unless its StockRank falls below some unacceptable level, say 70?
I look to see whether the outlook hs changed since I bought the stock and the revised fundamentals justify sellling.I won't sell on momentum alone ,but I will sell if the market has under-discounted a murky picture.
Hi Minnow,
You need to decide on your strategy ...
Are you a value investor? if so you might sell when you feel the stock has reached fair value OR if the fundamentals around the stock change so that the value you once ascribed no longer makes sense.
Are you a momentum investor? IF so you might sell on loss of price momentum triggered by the price falling below some value OR perhaps a significant reduction in EPS estimates (another part of Stockopedia's metrics) OR perhaps you'll have some other technical indicators that induce you to sell
Are you a stockranks investor? If so you might be a quarterly rebalancer and so you might only sell if a stock no longer meets the criteria for the strategy.
You might use an integrative style where you blend these approaches. For example I have a screen that searches for cheap growth in high quality companies in the UK, Europe, US and Australasia. I only buy stocks from this screen that are breaking out or making new highs. They are invariably HighFlyers (High Quality and High Momemtum ranks and when I mean high I'm talking > 80) and SuperStocks.
I sell when price momentum fails. I think of myself as a price surfer. Once the wave dies (whether it's a week or three years) I bail and find a new wave. And I hold my winning stocks even if the stockopedia ranks sink below my 80 threshold as this reduces trading costs. I just watch the GlamourTraps and FallingStar more closely as in my opinion they are the stocks that are more likely to crash. There is one selling exception and that is top slicing stocks that have shot up strongly and then start to drop quickly. In that case I'll take a slice of some profits and let the rest run.
So I'd suggest that getting members to say how they sell is little help to you unless you understand their strategy, you then might be able to build your own strategy.
Best of luck
Phil
Hi Phil,
Your approach sounds very sensible, however, how do you determine when price momentum fails? Do you have a mechanistic way to surf the price wave (such as a %age trailing stop, moving average(s), ATR trailing stop, Donchian channel etc.) or is it done on feel, or some other way e.g. market timing? Thanks
Hi Rick,
I use Ichimoku Charts a guide to set my notional stop losses. By notional I mean that these are limits that i monitor in a Google Spreadsheet and check on a regular basis. For me the advantage of the Ichimoku Charts is that you can instantly see the prevailing trend. Price above the cloud = Bullish, price below = Bearish, price stuck in the cloud = consolidating. the theory is that a thick cloud is formed by considerable price uncertainty in the past. And so people are invested at these prices so any reversal below (or above) them is significant particularly if there has been NO price action below the cloud (nothing to stop it falling further) or above the cloud. When I'm buying I tend to look for the five bullish signals being in my favour ...
1. Price above the cloud
2. Forward projected cloud is bullish
3. Price above both MA
4. Fast MA above slow MA
5. Lagging price is clear of historical price action
If a stock is a HighFlyer or a Superstock (and I use a threshold of 80 to determine that) I will tend to set my stop loss just below the cloud on the Ichimoku chart as the price spearing down through the cloud is particularly bearish as the price has broken down through a price area that previously generated resistance.
If a stock shifts into a GlamourTrap or FallingStar or perhaps all three QVM ranks drop below 80 I don't automatically sell rather I tighten my notional stop loss up to the slow MA (Kijun Sen) as I still want to ride any momentum in the share price.
Another scenario is if there has been a big price spike up in any of my stocks then I shift my stop loss up to the Kijun or even the TenkanSen (fast MA) to top slice if there's a quick sell off.
Not sure if that helps.
Best of luck
Phil
That's a very thorough process you have, Phil.
Just one question: do you alter your emphasis on factors over time? For example coming out of a recession, low Quality cyclical stocks with weak Balance Sheets often enjoy explosive share price rises.
Howard
Hi Howard,
A couple of years ago there was a thread on Stockopedia which demonstrated that high StockRank shares didn't necessarily outperform the lesser StockRank shares but it did suggest that high StockRank shares were highly defensive in that they produced fewer big loss selections.
I'm also no accountant and I've learnt to own my own 'apparent' deficiencies in investing, e.g. I know that I don't have the ability to deconstruct a business. I'm not clever enough to understand the impact of macro economics, etc. To be honest I only know in passing what each of the companies I invest in does. *Shrug* ... no doubt sacrilege to some.
So I play it simple.
I want high quality companies, who turn a profit, have cheap increasing profit estimates, sensible debt and price momentum. These stock at worst are classed as High Flyers (Q > 80, M > 80) and can be SuperStocks (QVM > 80). No doubt this will mean that I will miss some opportunities ... so what? I don't try to cover all bases.
Perhaps I've been very lucky over the last four years but at present I'm running at a 25% annualised return with low levels of risk plus with an International focus I'm diversified across markets and currencies so I'm in no hurry to tinker.
Not sure if that helps
Best of luck
Phil
Hi Minnow -
You have had pretty good advice from PhilH. For what it's worth here is what I do.
I have switched to being a momentum investor since last year and follow fairly closely Minervini's methods. He is a momentum investor who only invests in stocks which also show strong fundamentals. If you combine the two, then you are likely to get the superstocks which rocket to 100% + profits. So here are the simple rules for selling.
- if a stock falls below -10% soon after buying, ditch it. Clearly your views of it as a potential superstock is at odds with what the market thinks, and the market is always right. Don't fight it.
- if you are sitting on a gain of over 20%, start thinking of top slicing. But never sell on a rising trend. If the SP breaches the 50 EMA and then the 100 EMA, sell.
- think hard about a stock as it nears a reporting date. The momentum gurus say they sell their holdings and lock in any gains. I found this hard to adopt, but I am glad I did. Last week I was reviewing VANL which was showing a 23% profit with an RNS due today. So I followed Minervini's advice and sold. Today the results have been badly received and the stock is down 13% as I write.
If you are a long term investor then this is not for you. Since adopting this system last year, my portfolio is up 31%.
Good luck. Remember investing is all about risk management.
I don't agree with always selling after a 10% fall after buying, unless something has changed, most will bounce back usually straight after you have sold. Examples in last year have been IG Design (LON:IGR), IQE (LON:IQE), Beximco Pharmaceuticals (LON:BXP), Bioventix (LON:BVXP), Domino's Pizza (LON:DOM), Tristel (LON:TSTL), Boohoo.Com (LON:BOO), Staffline (LON:STAF), Indivior (LON:INDV) and Craneware (LON:CRW), I regard these falls as timing issues and are often a good time to top up. I beliee Warren Buffet is a fan of buying after a fall? Whether you own shares or not in the company does not make any difference to the company.
I'm also having trouble with your sell on breach of EMA 100, looking at Ab Dynamics (LON:ABDP), Domino's Pizza (LON:DOM) and £D4T4 which I hold I would have lost quite a bit of money if I had followed that instead of being well in profit.
herbie -
Sure some good shares would slip away. The point is that this rule takes out the emotion and subjectivity - for me at least.
The real question is, would my performance had been a lot better by moving the limit up to say -20%?
Well, I backtested this against my portfolio a few weeks back, and the answer is - no.
A motto often repeated in this forum : If a system works for you, stick with it
If you sell at 100 EMA, when do you buy back or don't you? That's what I'm saying it does not work for me. Selling before each RNS, your trading cost must be very high?
Can someone tell me what EMA is please? I presume it is some moving average but if I don't ask I won't know!
So if you held Revolution Bars (LON:RBG) you would have sold this morning or would have sold yesterday as there was a RNS out today?
Yep. Probably last week and locked any gains. The SP is down this morning and after reviewing Paul's comments which is that there is no real reason for the SP to drop, (the RNS doesn't throw any wobblies about this share) then I would be considering buying them back at a lower price.
What have I accomplished in the process? risk reduction first and foremost ; and possibly buying my position back for a lesser outlay. (SP is 4% down and the spread is only 0.7%).
All hypothetical of course.
But on 4% you will probably not make anything. The shares were down to 191p this morning, when I looked the spread was about 2%. I would rather do as Paul did, hold and top up on dips, there is no reason for the fall as far as I can see. If I had seen them at around 195p I would have topped up but they were around 215p when I looked.
Thanks for your input Phil. I am looking for a very simple method and had thought that that was the purpose of the StockRank number. That is, buy only on the high values, say 97+ and sell when one of these stocks goes down to say below 80. I'm thinking that if the stock has definite reversal indicators, then it would show up in it's StockRank number. If this is true, what StockRank number should be used as a trigger?
I was very reassured some time back to discover that some of the most successful investors turned out to be actually dead. That's to say that when at probate their portfolios were analysed, they had done better than average by not being active. Certainly, I have been dismayed to discover that some decisions I made years ago to shift funds from one company to another had been made to look foolish in time; I would have been wiser to have left well alone. I suspect many of us do not have the stomach to revisit our past decisions, always wanting to believe they were the wise choice as long as the new position seems to be working out.
I consider myself to be intelligent and have several pieces of paper to prove that. Sadly, none of those have any relevance to this particular arena in which I often find myself as thick as custard. MA? EMA? OMG! I prefer to consider myself as one who is red/green colour blind. After all, I can read the written word at speed in two languages but struggle to read music accurately after years of trying. OK, so I do understand what the acronyms mean but my problem is being able to apply them intelligently to managing my own portfolio. I detect a kindred spirit in many who post here who prefer to reduce the decision making headache to one of simple numbers, such as stockranks, percentage stoplosses, and chart signals. None of life is ever that simple, I have found.
The point being simply this. I cannot be a trader. It is not my forte. I invest for dividend yield and while a stock bears the fruit I selected it to deliver, I hold it, whatever Mr Market thinks. The dividends are then reinvested and, perhaps that is where my skills matter most. Fine timing is not the essence but careful placing after significant research does matter. Oddly, while avoiding anxiety and agonising over charts with a hovering finger on the buy or sell button, I have achieved my own set goal, a portfolio inside an ISA that continues to grow, amuses me daily as a hobby and, for some time now, delivers more than a living wage should I need one. It seems to have worked for me but who knows? I could just have been lucky.
.png)